Junk Bond Fund Decoupling From Stocks

By Brendan Conway

Junk-bond exchange-traded funds are lagging again. The SPDR Barclays High Yield Bond ETF (JNK) and iShares iBoxx $ High Yield Corporate Bond Fund (HYG) are ahead by 0.2%-0.3% in early Tuesday trading — with a triple-digit rise for the Dow Jones Industrial Average (DIA) and 12 points on the S&P 500 (SPY).

Much has been written about investors shifting back and forth between riskier assets, such as stocks, and the perceived safety of Treasury bonds and the U.S. dollar. January 2013 was one of those “risk on” periods – at least it was, until Jan. 25.

On that day, the SPDR Barclays High Yield Bond ETF (ticker: JNK) set its highest level since just before it collapsed in September 2008 during the height of the financial crisis ….

The ETF closed unchanged, and it did not seem like a big deal, technically, at the time. Through Monday, however, it had a six-day losing streak that included an unusually large single-day loss on exceptional volume. It also broke its rising trendline from the November low to the downside.

But even all of that was not very remarkable. What was more notable was the fact that stocks were still climbing. The Dow Jones Industrial Average was on its way past the 14,000 milestone, yet junk bonds were down in a big way.

To be sure, stocks and junk bonds have moved in different directions before, but having stocks reach five-year highs while junk bonds were sharply rejected at their own long-term resistance area was unusual to say the least.

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